Jun 13
Evaluating costs can be expensive and time consuming. Following is a table with some guidance on which costs you should consider for different decisions you would like to make.
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Incremental Costing
For simple pricing decision
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Incremental Costing
For pricing with incremental investment
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Total Costing
For measuring overall business profitability
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unit Price
- incremental VC per unit
= contribution margin / unit
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incremental revenue
- incremental variable cost
= incremental contribution
- incremental fixed costs
= net incremental
contribution
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sales revenue
- total variable costs
= total contribution
- incremental fixed costs
= net contribution
- non-incremental fixed & sunk costs
= net profit
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Source:
The Strategy and Tactics of Pricing
Jun 09
There are 3 primary strategies in pricing any product. Following are the 3 strategies and advantages of each.
- Skimming: Make money by charging higher prices.
- Penetration: Price lower and gain market share.
- Neutral: Be competitive with competition.
Following table shows few differences between these strategies.
Source:
The Strategy and Tactics of Pricing
Jun 09
Price setting is one of the key tasks in any business. Following one process you can follow to set pricing…
Source:
The Strategy and Tactics of Pricing
Jun 09
No segmentation can be successful without having good fences. What do I mean by fences? Fences are techniques to keep people from moving across segments. You do not want people in higher price segment to move to lower price segment. Following are few ways of building fences and e.g. of each category
- Buyer Identification: Student and senior discounts.
- Time of Purchase: Pay more in peak hours, Different prices for cell phone minutes
- Purchase Location: Amusement park tickets are cheaper on internet vs. when you buy at ticket counter
- Volume or Purchase Quantity: Group discounts for shows
- Product Bundling: Buy one get one free
- Tie-Ins: Contracts like cell phone contracts for 2 years
- Metering: Paying Electricity bill based on meters.
